Markets continue to trade in a wider choppy range as investors digest banking sector risks and the FEDs stated interest rate decisions. Get my take on the current market action in this week’s round-up.
WEEKLY SOUND BITES
US indexes moved higher in a very choppy week as small-cap stocks along with the DOW stay in negative territory for the year. The S&P Equal Weight Index rose 0.81% for the week but remained down 1.89% for the year. The week’s declines also pushed the S&P Midcap 400 and Russell 2000 indexes into negative territory for the year to date. Typically, when we see shocks to bank lending standards, resultant declines in employment and tighter credit leads to reduced GPD growth and company growth objectives.
Weekly jobless claims remained near five-decade lows, and S&P Global’s Composite Index of both current services and manufacturing activity, released Friday, jumped from 50.1 to 53.3 (with readings of 50 and over indicating expansion), indicating the fastest pace of private sector growth since last May, with new orders turning higher for the first time since September.
As was widely expected, the Fed raised official short-term rates by 25-BPS to 4.75 to 5.00%, and the “dot plot” showing individual policymakers’ rate expectations—while indicating a growing disparity in outlooks—indicated that officials expected to stop raising rates after one more hike in May. Fed Chair Jerome “Power Ranger Boom Boom” Powell’s post-meeting press conference suggested that the Fed’s change in tone was driven by forecast uncertainty rather than a strong conviction that a 5.0% to 5.25% fed funds target range (assuming a 25-bps rate increase in May) would be sufficiently restrictive, making a pause after May all but certain. Powell also added that Fed officials “don’t see rate cuts this year. However, investors didn’t appear to take him at his word, however, and futures markets ended the week pricing in a 98.2% chance that rates would end the year lower.
Meanwhile, in the U.K. the Bank of England (BoE) raised interest rates to 4.25% from 4.00%, the 11th consecutive increase. On a year-over-year basis, U.K. consumer prices rose to 10.4% in February—well above the consensus expectation. And in the Eurozone, we see business activity expanded faster than expected in March, driven by strong growth in the services sector. A preliminary reading of S&P Globals eurozone composite PMI rose to a 10-month high of 54.1 in March from 52 in the previous month.
In Japan, the rate of consumer inflation slowed with the core consumer price index rising 3.1% year on year in February, down from January’s 4.2%, an over four-decade high. Amid calls for further stimulus, a government panel endorsed plans during the week to add more than JPY 2 trillion to existing inflation relief measures.
Chinese stocks rose on hopes that the country’s central bank will maintain an accommodative stance amid the global banking turmoil. The People’s Bank of China (PBOC) left its benchmark one-year and five-year loan prime rates (LPR) at 3.65% and 4.3%, respectively, for the seventh consecutive month. China’s economic indicators have picked up in recent months as consumption and infrastructure investment rebounded from pandemic lockdowns. However, many analysts predict that policymakers will maintain an accommodative stance as banking industry turmoil strains the global growth outlook.
Enjoy this week’s round-up;
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